Step by step to currency liberalization: top 10-changes by NBU

Authors: Olena Savchuk, Senior Associate and Yuliya Tsekhmestruk, Paralegal (both – Banking & Finance practice)

The article was published in Economichna Pravda.

In 2019 new law “On Currency and Currency Operations” comes into force. In addition, the National Bank introduced a series of changes aimed at supporting banks.

The 2018-2019 milestone was marked by a significant, and sometimes revolutionary, changes in the banking and currency sphere.

On January 2, the NBU has finally published the resolutions that have been adopted in implementation of the law “On Currency and Currency Operations” (Law on Currency).

Adopted regulations (which came into force on February 7, 2019, together with the Law on Currency) set a course towards free movement of capital, simplify investment both into Ukraine and abroad, and in general, are called to adapt Ukrainian currency legislation to the European one.

Moreover, the NBU has recently introduced a series of changes aimed at supporting banks. So, what are the major changes in the Ukrainian financial sector this year?

1. Cancellation of individual licenses. Introduction of e-limits system.
   Residents will now be able to freely open accounts abroad and transfer funds to such accounts, as well as to invest in foreign securities, corporate rights, real estate by transferring funds out of Ukraine.

For carrying out economic activity by legal entities and entrepreneurs the NBU has set an aggregatetransfer limit of EUR 2 000 000 per year (per resident).

Funds can be transferred abroad as well as to current accounts  opened non-resident legal entities in Ukraine (except for investment accounts).

The limit for transfers for individuals will be EUR 50 000 euros per year (or its equivalent  in another foreign currency / hryvnia).

These funds can be used for such purposes as fulfilment of a residents’ own obligations towards non-residents under life insurance contracts, investing abroad, placing funds on their own accounts outside of Ukraine.

Some transactions can be carried out by legal entities and entrepreneurs without limitation of the amount, including repayment of foreign loans.

2. Abolition of currency control over export-import operations for the amount less than UAH 150 000.
   By its new regulation on currency oversight dated January 3, 2019 the NBU stipulated that currency supervision shall now be replaced by currency oversight.

In fact, information about currency operations will be collected primarily due to statistical purposes.

This innovation should entail elimination of ineffective administrative pressure on banks and their clients.

In practice, this means that banks will apply a risk-oriented approach – the more suspicious is the operation (in particular, pursuant to the indicators approved by the NBU), the more the bank will scrutinize it.

3. Increase of payment terms under export-import contracts.

The term for settlements under foreign economic contracts has been increased from 180 to 365 days.

In addition, such sanctions for violation of this term as fine of 100% of the amount of the operation and ban of foreign economic activity have been lifted.

However, the Law on Currency still stipulates a penalty for each day of delay in case of failure to meet the deadline (0, 3% of the amount of funds that have not been received under respective contract).

4. Changes in the procedure of obtaining loans from non-residents.

The residents will not have to await registration of the relevant agreement with the NBU before obtaining funding from abroad – registration of foreign borrowings will be replaced by a notification procedure.

Previously, the NBU could hinder obtaining of a loan (credit) from a non-resident, by rejecting the registration request. Under the new rules, the service bank checks all the operation documents and brings information about the agreement into an automated information system, which, in fact, allows for further transfer of funds.

At the same time, it is not necessary to re-register existing loans – information about them shall be transferred to the new database by the banks.

5. Early repayment of loans.

By its Resolution No. 5 dated 2 January 2019 the NBU abolished the ban on early repayment of external borrowings, which had been established back in March 2014. From now on, it will be possible to repay them at any time stipulated by the agreement.

6. Changes of the regime of accounts and extension of permitted currency operations.
   The NBU is planning to change the regime of local accounts by allowing to carry out settlements under foreign economic contracts, investments, free debiting and crediting of funds and other non-trading operations on the non-residents’ “N” type accounts (accounts of representative offices that are not engaged in entrepreneurial activity in Ukraine).

The regulator plans to gradually cancel the investment account as such.

The Law on Currency now allows the banks to carry out transactions on accounts of business entities even before receiving notification about registration of these accounts from tax authorities.

In addition, residents have been given the right to pay for currency domestic government bonds not only in hryvnia, but also in foreign currency, as well as carry out currency swap operations  (only with the banks).

7. Severization of financial monitoring by banks.

From now on, the list of indicators of risky currency operations includes carrying out by a group of persons of related currency operations (which otherwise do not require submission of documents) in favor of one counterparty for an amount less than UAH 150 000 000, or carrying out thereof by one person subject to simultaneous presence of all signs of operation splitting.

In addition, disparity between the price of foreign lending under a separate loan agreement and market prices has been recognized a risky indicator as well.

8. Simplification of opening, use and closing of accounts.

By the NBU’s Regulation No. 159 of 28 December 2018, the banks have been granted the right to carry out identification and verification of individuals during opening of accounts through third parties.

In particular, the bank has the right at the time of opening of accounts to use the data of individuals received from another bank through the BankID system of the NBU, as well as to entrust resident legal entities, individual entrepreneurs and individual agents to identify and verify the bank’s clients (natural persons) on a contractual basis.

9. Expansion of possibilities for operations with banking metals.

The NBU has allowed legal entities to transfer bank metals across the border without limitation of the amount, however, subject to a written declaration to the customs authorities.

The NBU also notes that such operations should be “caused by economic activity” (contract with a counterparty is required).

Previously, such right was foreseen only for banks (if the weight of metals exceeded 500 g), and in other cases – under the condition of selling metals to the National Bank.

Individuals have the right to transport banking metals in the amount of up to 10 thousand euros (previously – up to 500 g).

10. New opportunities and restrictions in the activities of banks.

In light of the difficulties in complying by many banks with the liquidity ratio introduced in early 2018 in order to maintain financial stability of the banking system, the NBU has reduced the minimum LCR in foreign currency to 50% for six months.

It is expected that from June 1, 2019 the banks will have to ensure the LCR at the level of 90%, and thereafter – at the level of 100%.

The NBU has also introduced a new instrument for banks additional capitalization. It provides for the write-off or conversion of obligations towards the investor in ordinary shares of the bank in case of reduction of the level of sufficiency of the bank’s basic capital (without including such instrument) below 6,25%.

At that, the claims of such investor in the event of the bank’s liquidation shall be satisfied after satisfaction of its all other creditors’ claims.

The minimum term for raising funds for such instrument is 50 years.

Another novelty relates to increase of transparency requirements to the banking system.

The NBU has expanded the list of data publishable by banks by adding such information as the level of credit exposure according to the classes of the bank’s debtors, the typology of deposits of individuals by the amount of deposits and the number of depositors in foreign and national currency, the state of the bank’s compliance with the LCR.

Along with the fact that the NBU declares a liberalization line, it nevertheless keeps certain restrictions.

In particular, the mandatory sale of 50% (30% – starting from 1 March 2019) of foreign currency receipts remained unchanged, as well as the limitation of the terms of repatriation of dividends (although the period has been extended to cover the dividends accrued up to the year 2018 inclusive).

In the roadmap for abolition of currency restrictions which has been developed by the NBU, gradual сancellation of these restrictions is defined as one of the most important steps.

Among the priority steps the NBU also sees further lifting of restrictions on the purchase of foreign currency (currently it can only be purchased for a repayment under the resident’s existing obligations), as well as such innovations as permission to purchase foreign currency for the borrower funds and the possibility of netting of currency obligations.

These and other changes undoubtedly simplify investments, conducting of business and can ensure gradual transition to a free movement of capital.

However, this can only be implemented if further regulations adopted by the NBU will not contain a large number of new restrictions that will slow down the nearing of Ukrainian currency legislation to the European legal framework.